Retirement and 401k News

Why Retirement Saving Makes More Sense Now Than Ever Before

January 20, 2020 –  Forbes

 

The math behind retirement saving always made sense to me. The more you can sock away, the more your kitty compounds and the more you’ll have at retirement. With 401(k)s slowly improving, the math makes even more sense. More plans offer automatic withdrawals, employer matches and Roth options. I can’t tell you what the stock or bond markets will do this year, but I’m certain that the math behind saving will make even more sense this year — and in years to come.

 

So it doesn’t surprise me why more people are saving in their retirement plans. Here some recent findings from the annual Plan Sponsor Council of America (PSCA) survey:

  • Savers socked away an average 7.7% of pay, up from 6.8% just two years earlier, according to PSCA.

  • Nearly a quarter (23%) contributed to a Roth (if offered), up from 19.5% in 2017 and 18.1% in 2016 – an increase of nearly 30 percent in just three years. Nearly 70% of plans offer a Roth 401(k) option.

  • A third of plan sponsors are recommending specific savings targets to employees – and for nearly half of those, it’s a number 10% or higher.

  • The percentage of participants taking a hardship withdrawal dropped from 2.3% in 2017 to 1.8% of participants in 2018.

  • Contributions rose last year to an average of 7.7% of pay, up from 7.1 percent in 2017 and 6.8 percent in 2016.

  • With company contributions coming in at an average of 5.2% in 2018, the average combined savings rate is now at 12.9%, up from last year’s record finding of a combined savings rate of 12.2%.

Why do higher savings rates matter? “A 35-year-old earning $60,000 a year would save an extra $85,500 by retirement age by increasing 401(k) contributions by just 1%,” according to a Fidelity Investments estimate. “A 45-year-old earning $70,000 a year would have an additional $43,000.”

While I would like to see all employers offer and contribute to retirement plans — remember 401(k)-type plans are voluntary — these numbers are a step in the right direction. Automatic savings at higher contribution rates is the key to building a bigger nest egg over time.

This article was written by John F. Wasik from Forbes and was legally licensed by AdvisorStream through the NewsCred publisher network.

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